Better results in projects – a brief introduction to claim management

For many companies, an important question arises during projects: how can the financial results in a project be improved, with regards to the claims that are on the table? Claim management can be the method of choice.

Claim management means all contract management measures that serve either as defence against claims of the other party or as enforcement of ones own claims. It is important to notice that the causes of claims can be manifold: for example, a contract is not adequately specified or it is incomplete, there are extensive requests by the other party for changes in the scope of supply or service or the contractual obligations are defectively fulfilled by one party. The results are delays, additions or changes to the original order, which regularly incur additional charges.

Two approaches of claim management

Claim management has two starting points: In the case of passive claim management, the avoidance or reduction of the claims of the other party or the preparation of one’s own claims is set. In contrast, active claim management is used when an order or project has already been disrupted and claims are being processed and enforced.

Passive Claim Management

In our experience, the most important decisions for dealing with additional claims are in the area of passive claim management. Here the basis of cooperation of the parties is concluded with the closed contract. However, we keep seeing that too little attention is paid to contract design.

In addition, it is important both before and after the conclusion of the contract to identify possible risks that could arise for a project from the contract and to prepare for their realization. It is quite common that at the last moment in the context of negotiations by the contractors additions are made in the contract, with their risks only being foreseeable in the future.

Active Claim Management

Active claim management begins when own claims are to be asserted or third-party claims have been asserted.

First, it is important to assess your own or third-party claims from their own point of view. Decisive are the closed contracts (all of them, that means also additional agreements to a “master contract”) as well as the applicable law. Furthermore, based on the existing documentation of the actions of the parties, the identified claim must be checked for its enforceability. Finally, the claim is presented to the other side or it is explained to the other side why their claim is not enforceable.

Then it comes to the stage of claim negotiation. This raises the question of whether, with a view to further cooperation, a claim should be put forward. Considering lost time, expected costs and potentially ruined business relationships, it may be more beneficial to waive or not enforce in full ones own claims.

In a final step, the claim process that has been processed must then undergo a review (“claim controlling”) in order to be able to use the accumulated experience in new cases.

Successful claim assertions

If your own analysis has shown that your own claim can be asserted, it is questionable when it can be asserted “successfully”. Required for this is on the one hand careful preparation. The claim is processed with its backgrounds, the claim bases worked out and backed up with evidence. It is important to keep an eye on the costs of the assertion and to set them in relation to the possible result of a claim.

On the other hand, another factor should be kept in mind: In most cases, judicial proceedings do not make sense, since further cooperation after carrying out such a process, which is geared to confrontation, is often no longer possible. Here, arbitration or mediation procedures offer the advantage that the parties seek a solution together and, much more than in a classical court case, a result acceptable to all parties can be achieved.

Conclusion

Medium-sized companies should use every reasonable advantage to actively secure the targeted result within the scope of a project. Consciously managed claim management can be such an advantage. Decisive for the success are a carefully prepared contract as a starting point, precise documentation, elaborated internal processes and well-prepared negotiations.